In 2017 the uranium industry has continued to face challenges. Uranium prices suffered their sixth consecutive year of bear- market conditions following the Fukushima accident in March 2011. The uranium spot price dropped 44% in the space of 12 months, from $32 per pound at the beginning of the financial year, to a low of $18 per pound in November 2016, before recovering slightly to just over $25 per pound in March 2017. The depth and breadth of this market downturn is finally taking a noticeable toll on the production side of the supply and demand equation.

Production cutbacks are now common, as higher priced legacy long-term contracts begin to fall away. Uranium prices hovering close to the $20 per pound level (which is where they had settled by July this year) are unlikely to be sustainable, as all-in production costs of even the lowest cost producing mines, as reported by UxC, are higher than the depressed price level. Furthermore, the current price environment is failing to motivate operators to crank up their as-yet undeveloped sites and push on with construction.

Unfortunately these prolonged low uranium price levels persist, despite promising developments on the demand side in 2016. According to the US Energy Information Administration and American Nuclear Society, 2015 and 2016 saw more new nuclear capacity additions to the worldwide electricity grid than any other years in the last 25-year period. Nuclear energy continues to see further uptake around the world thanks to its ability to deliver such impressive amounts of reliable and constant baseload energy, without air pollution, at competitive generating costs.

In Europe this glimmer of market optimism is represented by a new Salamanca mine, three hours’ drive west of Madrid, which is presently under construction by Berkeley Energia. It is the only new mine of its kind and size being developed in the world today. Governments’ reticence about commissioning replacement plants and expansion of nuclear power capacity has changed, largely because of increased demand for electricity bolstered by decarbonisation treaties. But building new reactors is time consuming, so the Salamanca project is lonesome at the new uranium mine party.

The Salamanca mine has strong credentials, though. Its unique circumstances promise low production costs. The uranium ore is high-grade and extremely close to the surface – only 4m in some areas – and situated in a part of Europe that has already seen considerable investment in communication and power grids. Paul Atherley, Berkeley Energia chief executive, believes European citizens should see returns on their infrastructure investments. He says the mine’s pre-production capital expenditure of $100m is less than half of what is typical in the industry.

Atherley says operating costs of $13.30 per pound catapults his site into a select group of the world’s lowest-cost producers. It is a very economic site, even with the current spot price of around $18 per pound.

Uranium prices look like they could see a turnaround. Industry giant Cameco’s share price recently rose 40% after a multiyear decline. A Cantor Fitzgerald report suggests that oversupply could end by 2020, replaced by a substantial supply deficit for the next decade. Atherley believes Salamanca will become a key producer if that happens.

Worldwide demand holds up

Ten nuclear reactors were added to the worldwide grid in the course of the 2016 calendar year, which surpassed the previous benchmark set in 2015 for the highest rate of growth of nuclear power capacity in the last 25 years. The World Nuclear Association (WNA) confirms that 447 reactors were up and running in 30 countries by March 2017. These reactors have a total capacity of 392GW and supply over 11.5% of the world’s electricity needs. Another 59 nuclear reactors are under construction in 14 nations.

The overwhelming drivers of this expansion are China (21), Russia (seven), India (five), the USA (four), and the United Arab Emirates (four). Furthermore, according to the most up-to-date statistics from the WNA, there are 164 reactors either on order or planned, and a further 350 reactors now proposed to be developed in the coming years. China continues to be at the forefront, ramping up from 30 reactors totalling 31GW to close to 100GW within 10 years – more than the currently installed US capacity.

Uranium demand in the US is under downwards pressure, particularly in deregulated markets, as there is now competition from highly subsidised renewables and low natural gas prices. Despite this trend, the value of nuclear energy in the overall energy mix – low fuel cost, grid stability, dependable 24/7 supply, 95% capacity factors and clean air benefits – is being recognised. A few states have enacted legislation, or are considering it, to maintain this key contributor of clean, baseload energy to their grids.

In the more regulated markets of the Southeast, four new large reactors are under construction (in South Carolina and Georgia). Despite construction challenges inherent in projects of this massive scope, nuclear is expected to be an energy cornerstone of their service territories for many decades to come. Furthermore, throughout the USA, all existing nuclear reactors have received, or are applying for, licence extensions that are expected to add anything from 20 to 40 years to their total operating life.

Secondary supply

Primary mine production accounts for roughly 94% of current demand, but that excludes inventory buildup. The balance of demand is met by secondary sources, including commercial inventories, reprocessing of spent fuel, sales by uranium enrichers and government inventories (in particular the US Department of Energy). Excess commercial inventories, which were a predominant source of secondary supplies from the early 1970s to the early 2000s, have mostly been used up.

However, commercial inventories could prove a decisive factor going forward, according to the Uranium Participation Corporation (UBC), as a consequence of the closure of Germanys nuclear programme and the winding down of Japan’s nuclear fleet. Government inventories will continue to represent a big source of secondary supplies, particularly in the USA and Russia. The disposition of these inventories may have a market impact over the next 10 to 20 years; however, the rate and timing of its entry into the market is unclear.

Reprocessing spent fuel is another secondary supply source, but one that is expected to cover only around 6% of demand. Any further expansion of this secondary source would demand considerable capital investment, so it could only be realised with an accompanying hike in long-term uranium prices. UxC is on record as expecting secondary sources of uranium supply to drop from 45.9 million pounds in 2016 to a low of 30.8 million pounds per year by 2025.

The Salamanca mine is located in a historic uranium mining region and consequently local people are well aware of the socioeconomic benefits of having an operating mine in the region. They support the project. When it comes online in late 2018, the mine will produce 4.4 million pounds of uranium a year at its peak, during 14 years of operation, based on probable resources. That’s enough to meet 10% of Europe’s needs. The site will provide 700 construction jobs and 450 permanent staff when fully operational. It will support 2000 more indirectly.

In November last year, Berkeley signed a binding off-take agreement with privately-funded commodity trading firm Curzon Resources (formerly Interalloys Trading), for the sale of first output from Salamanca. The arrangement is for two million pounds of the material over a five-year period at an average fixed price of $43.78 per pound of contracted and optional volumes. However, there is an option to raise annual volumes and extend the contract to three million pounds. The Euratom Supply Agency has now countersigned the agreement, as it satisfies Article 52 of the Treaty.

Alameda work site

At the Salamanca site, deposits are proposed to be mined using conventional open-pit and transfer mining methods, integrating hydraulic excavators, haul trucks, and drill and blast operations. The transfer mining method will enable open pits to be continuously backfilled, reducing waste dump volumes and waste rehandling. Initially Retortillo will be mined, and will be replaced by Zona 7 in the second year, while Alameda will start production in the third year. Mining at Retortillo will resume in the ninth year, following the depletion of the high-grade ore at Zona 7.

The low-grade ore from Zona 7 will be processed in the last one and half years of production. A central processing plant will be located at the Retortillo site. The proposed process flowsheet for the project includes crushing, screening, agglomeration, stacking and heap leaching using on-off leach pads, uranium recovery and purification by solvent extraction, ammonium diuranate precipitation, and calcination. The Zona 7 site, situated 10km away from the process plant, will have just a primary crusher.

Project costs

Hugo Schumann, chief commercial officer at Berkeley Energia, says the Spanish site also benefits from very low mining contractor costs, and low stripping ratios. “In Namibia you’re looking at stripping ratios of five to one, meaning you’ve got to move five tonnes of waste to get one tonne of ore. In our projects it can be around 1.5 to every tonne of ore. Also, in terms of processing we’re leaching in a way that brings big savings. We have local sources for sulphuric acid in Spain, so we don’t have to store our own. The cost of sulphuric acid is incredibly low.”

The Alameda site – located roughly 35km from Retortilo – will share the main processing plant’s uranium recovery and purification facility. “We’re connected to the local power grid so we’re not operating massive diesel generators,” adds Schumann. “We’re connected at seven eurocents per kWh. We have roads and local communities. We’re not flying people in and out, we’re not building air strips. Those are all costs we don’t have. When you consider the proximity to the conversion facility in France, it all comes together to make for very low cost production.”

Schumann says continuous rehabilitation is a top priority for the Salamanca site: “We will progressively rehabilitate the area. We’re not one of those operations where at the end of the long mine life, you suddenly have a huge environmental liability. A lot of companies pretend to go bust so they don’t have to fix it. But every year, we’re investing in rehabilitation. We will reforest the whole area. We’re planting six trees for every tree we cut down. We’re taking real pain to be a leader in environmental management.”

Schumann laments the fact that Japanese restarts are taking longer than expected: “But our thesis is to build this mine at the bottom of the cycle, to position ourselves for production in a much better market. That’s something you don’t often see in mining companies. They tend to be funded when there’s a big hype around the commodity and all the investors are interested. You build the thing and all of a sudden the mine loses a lot of money. We’re doing the opposite. Our shareholders are very long-term in their thinking. We’ll be coming on-stream in a significantly improved market.”

“A UxC report from June declared that uranium won’t stay cheap forever…and it definitely won’t,” he concludes. “I think this is a time when the utilities should be out there buying as much material as they can. They seem not to be entering into long-term contracts at the moment. The way we see the world is that the US has regulated and unregulated markets. The fleets that aren’t regulated are having a fun time with low natural gas prices. The fleets that are regulated are fine. Europe is stable, but slowly declining. The real growth is from Asia. China’s growth is driving the long-term picture.”